Chapter 4 Saving, Investment and Financial System
LEARNING OBJECTIVES学习目标:
Understand some of the important financial institutions in the economy
Explain how the financial system is related to the nation's saving and investment
Examine the difference between saving and investment in Macroeconomics' language
Explain how the interest rate adjusts to balance saving and investment by developing the supply and demand model for loanable funds
Analyze how various government policies affect a nation's saving and investment
LECTURE VIDEO学习视频1:
LEARNING OUTLINE学习大纲:
Financial system: a group of institutions in the economy that help match one person's saving with another person's investment.
Financial system moves the economy's scarce resources from savers to borrowers.
The financial system is made up of various financial institutions that help coordinate savers and borrowers.
a. Financial markets are the institutions through which savers can directly provide funds to borrowers.
(1) The bond market:
Firms can sell bonds in the bond market, thus borrowing directly from the public.
A bond is a certificate of indebtedness that specifies the obligations of the borrower to the holder of the bond.
(2) The stock market:
Firms can sell shares of its stock in the stock market, thus rasing equity capital directly from the public.
Stock represents ownership in a firm and is, therefore, a claim to the profits that the firm generates.
The sale of stock to raise money is called equity finance; while, the sale of bonds to raise money is called debt finance.
b. Financial intermediaries are institutions through which savers can indirectly provide funds to borrowers.
(1) Banks
The primary role of banks is to take in deposits from people who want to save and then lend them out to others who want to borrow.
Banks pay depositors interest on their deposits and charge borrowers a slightly higher rate of interest to cover the costs of running the bank and provide the bank owners with some amount of profit.
(2) Mutual fund is an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds.
The primary advantage of a mutual fund is that it allows individuals with small amounts of money to diversify their holdings.
There are many financial institutions in the economy and all these institutions all serve the same goal—moving the scarce funds from savers to borrowers.
PRACTICE 习题1：
